In an ex­clu­sive in­ter­view with The STAR Busi­ness­week, Chair­man of the ECCB Mon­e­tary Coun­cil Dr Keith Mitchell talks risk, re­silience and re­form

When Dr Keith Mitchell as­sumed the Chair­man­ship of the Eastern Caribbean Cen­tral Bank (ECCB)’s Mon­e­tary Coun­cil this sum­mer he out­lined his pri­or­i­ties as fis­cal re­silience, re­gional co­op­er­a­tion and proac­tive bank­ing.

Dr Mitchell, Prime Min­is­ter and Min­is­ter of Fi­nance for Gre­nada, is eager to tackle long­stand­ing chal­lenges dur­ing his ten­ure and will be aided by a favourable fi­nan­cial cli­mate. The global econ­omy ex­panded by 3.9 per cent this year and is ex­pected to con­tinue this rate of growth into 2019. The Eastern Caribbean Cur­rency Union (ECCU) is also on an up­ward trend, record­ing 2 per cent growth this year and pro­ject­ing 3.5 per cent for 2019.

“The bank­ing sys­tem is stable,” says Mitchell. “The li­censed fi­nan­cial in­sti­tu­tions are gen­er­ally sol­vent, banks con­tinue to meet their clear­ings obli­ga­tions in a timely and ef­fi­cient man­ner [and], most im­por­tantly, the pub­lic con­tin­ues to demon­strate con­fi­dence in the fi­nan­cial sys­tem.”

PRE­PAR­ING FOR SHOCKS

Bank­ing in the Eastern Caribbean may be stable, but there is plenty to keep the ECCB busy. Mitchell says one of the most press­ing is­sues is credit risk. With Brexit on the hori­zon, fluc­tu­at­ing oil prices and a volatile geopo­lit­i­cal scene, re­gional banks need to main­tain their abil­ity to ab­sorb shocks. This is threat­ened, how­ever, by their large vol­ume of non-per­form­ing loans (NPLs). By the end of June 2018 NPLs to­talled $1.4bn or 11.4 per cent of banks’ loan port­fo­lios.

As­sist­ing banks in de­vel­op­ing bet­ter risk man­age­ment is a raft of leg­is­la­tion. This year the In­ter­na­tional Fi­nan­cial Re­port­ing Stan­dards (IFRS) 9 came into force, re­quir­ing banks to adopt more pro­vi­sions for loss and in­tro­duce more ef­fec­tive safe­guards. The ECCB is also work­ing with a Basel im­ple­men­ta­tion team to en­sure banks in the re­gion are up to date with Basel II and Basel III. The Basel frame­work re­quires banks to have suf­fi­cient liq­uid as­sets to be able to with­stand loss of fund­ing for at least a month.

A more re­silient sec­tor will not only be able to sur­vive ex­ter­nal shocks, but also over­come chal­lenges at the re­gional and na­tional level, such as the threat of de-risk­ing. Loss of Cor­re­spon­dent Bank­ing Re­la­tion­ships (CBRs) is an on­go­ing prob­lem in the Caribbean as the re­gion’s rep­u­ta­tion be­comes tar­nished by in­ter­na­tional tax reg­u­la­tors. Mitchell says mit­i­gat­ing the im­pact of de-risk­ing is a “top pri­or­ity” for the ECCB and adds: “Mem­ber gov­ern­ments con­tinue to ex­plore pol­icy op­tions, in­clud­ing the need for more in­ter­ven­tion on the po­lit­i­cal level and the need for greater re­spon­si­bil­i­ties by au­thor­i­ties at the ju­ris­dic­tional level.

“All stake­hold­ers have a role to play, specif­i­cally in terms of in­creas­ing trans­parency, fo­cus­ing on ex­actly what is re­quired to main­tain CBRs and un­der­stand­ing ex­actly what the risks are.”

The ECCB has been ad­vo­cat­ing for the in­dus­try on the in­ter­na­tional stage, meet­ing with rep­re­sen­ta­tives in the UK, Canada and the United States. At the coun­try level, the ECCB is call­ing for a cul­ture of com­pli­ance through­out its mem­ber

states, and urges all banks to ad­dress any gaps in their AML/CFT frame­work. A col­lab­o­ra­tive ap­proach will help the re­gion re­frame the dis­cus­sion, ac­cord­ing to Mitchell who says: “It is im­per­a­tive that Cen­tral Banks and reg­u­la­tory agen­cies act more col­lec­tively for greater im­pact. There is a need for greater rep­re­sen­ta­tion in all global fo­rums [and] a need to de­velop and im­ple­ment a com­mu­ni­ca­tions strat­egy to re­de­fine the im­age of the re­gion from that of a high-risk tax haven to highly re­spon­si­ble and com­pli­ant ju­ris­dic­tions.”

EN­COUR­AG­ING EN­TREPRENEURS

As the Eastern Caribbean bank­ing sys­tem strives to be­come more re­silient, many fi­nan­cial in­sti­tu­tions have taken a hard­line ap­proach to lend­ing prac­tices, of­ten leav­ing Small and Medium-sized En­ter­prises (SMEs) out in the cold.

In many cases, would-be en­trepreneurs are thwarted by a lack of ac­cess to fi­nance, usu­ally be­cause they do not have the nec­es­sary col­lat­eral. “In­ad­e­quate ac­cess to fi­nance re­mains a ma­jor im­ped­i­ment to SME in­vest­ment and un­der­mines their im­por­tance to con­tribut­ing to eco­nomic growth, em­ploy­ment and de­vel­op­ment,” says Mitchell who stresses, how­ever, that banks can­not bear sole re­spon­si­bil­ity for the damp­en­ing of en­trepreneurial growth. “The de­vel­op­ment of SMEs has to tran­scend fi­nanc­ing and em­brace a holis­tic view of an en­abling busi­ness ecosys­tem. The in­fra­struc­ture for fi­nan­cial ser­vices has to be built on the premise that profit ori­en­ta­tion and eco­nomic de­vel­op­ment are not mu­tu­ally ex­clu­sive. The goal must be to pro­mote en­ter­prise de­vel­op­ment and growth by help­ing busi­nesses gain ac­cess to fi­nance, build skills and help them add value to their ac­tiv­i­ties.”

The ECCB aims to launch the Eastern Caribbean Par­tial Credit Guar­an­tee Cor­po­ra­tion by the end of the year. This agency will pro­vide a par­tial guar­an­tee on loans made by ap­proved fi­nan­cial in­sti­tu­tions to small busi­nesses in the ECCU and work with providers to help these fledg­ling com­pa­nies boost their skills and fi­nan­cial know-how.

LEVER­AG­ING TECH­NOL­OGY

The ECCB isn’t just in­ter­ested in equip­ping SMEs with the nec­es­sary skills and knowl­edge; it also wants to reach in­di­vid­u­als who are ex­cluded from the fi­nan­cial in­fra­struc­ture. Bring­ing the un­banked into the ex­ist­ing eco­nomic frame­work can de­liver ben­e­fits that rip­ple out to pos­i­tively im­pact oth­ers.

Mitchell says: “Fi­nan­cial in­clu­sion may fa­cil­i­tate the poor as it will en­able them to build sav­ings which can give them ac­cess to credit. Ac­cess to credit can as­sist them in in­creas­ing their pro­duc­tive ca­pac­ity which can en­able them to cre­ate job op­por­tu­ni­ties thereby gen­er­at­ing em­ploy­ment within their re­spec­tive com­mu­ni­ties.”

To pro­mote fi­nan­cial in­clu­sion, the ECCB is tack­ling con­sumer con­cerns. “The sig­nif­i­cant in­crease in bank fees over the past years and the prac­tice of banks to have ac­count hold­ers main­tain a min­i­mum bal­ance, com­bined with peo­ple’s dis­com­fort and in­tim­i­da­tion in us­ing com­mer­cial bank ser­vices have in­creased the size of the un­banked pop­u­la­tion,” says Mitchell. Fol­low­ing con­sul­ta­tion with in­dus­try, the ECCB in­tends to im­ple­ment the Pru­den­tial Stan­dards on Fees and Charges for Fi­nan­cial In­sti­tu­tions by the end of the year. It is also look­ing at mod­ernising the pay­ment sys­tem through elec­tronic wallets and “e-money” to make bank­ing eas­ier and more con­ve­nient.

In March the ECCB part­nered with Fin­Tech firm Bitt Inc to launch a pilot pro­ject aimed at cre­at­ing a dig­i­tal ver­sion of the EC dol­lar and a blockchain sys­tem to sup­port dig­i­tal pay­ments and trans­fers. The ini­tia­tive is ex­pected to be­gin be­fore the end of 2018 and last up to 19 months. Mitchell says the aim is to “deepen fi­nan­cial in­clu­sion and ad­vance eco­nomic growth, re­silience and com­pet­i­tive­ness.”

The ECCB is cel­e­brat­ing its 35th an­niver­sary this year. Look­ing ahead to the fu­ture, the bank is con­fi­dent it can keep up with the chang­ing times and main­tain sta­bil­ity. As of this month, the EC dol­lar re­mains strong, with 98 cents in each dol­lar backed by for­eign re­serves. Dur­ing his ten­ure as Chair­man, Mitchell says he wants to con­tinue de­liv­er­ing on the bank’s strate­gic goals as laid out in its 2017-2021 Strate­gic Plan and adds: “By work­ing to­gether with other re­gional in­sti­tu­tions and so­cial part­ners we can trans­form our re­gion.”

Chair­man­ship of the ECCB Mon­e­tary Coun­cil was trans­ferred from Prime Min­is­ter of Do­minica Roo­sevelt Sk­er­rit to Prime Min­is­ter of Gre­nada Keith Mitchell (pic­tured) ear­lier this sum­mer. The Mon­e­tary Coun­cil is the high­est de­ci­sion mak­ing au­thor­ity in the ECCB and is com­prised of the eight Min­is­ters of Fi­nance rep­re­sent­ing the ECCB mem­ber gov­ern­ments